Finance

What is a DCF Model?

Written by efinancialmodels

A Discounted Cash Flow (DCF) is a valuation method to determine the value of a company or an asset by discounting its future expected cash flows. Either valuing a project, company, or assets using the concepts of the time value of money. A DCF value is calculated by using future free cash flow projections then discounted by using the required opportunity cost of capital to determine their present values. The result can then also be used as a reference to evaluate the potential for investment. An investment is deemed a good one if the result derived at is higher than the current cost to get the investment.

Making use of the DCF Valuation Method, a DCF model is then created to represent the figures derived in a structured way. A DCF model is a type of financial model that makes use of the DCF valuation method. Many businessmen, entrepreneurs, and venture capitalists refer to a DCF model first to help in their decision-making in potential investments and to ensure if the investment is worth it.

Using a DCF model is a critical skill for experts like investment bankers, private equity, equity research and “buy side” investors. For those who didn’t have time to create their own DCF model or those who doesn’t know how to create a DCF model from scratch, they can always acquire DCF Model templates in financial modeling platforms which offers financial model templates specially designed for different businesses in almost all industries.

These templates are usually included with charts and comes in excel files to have a professional look and better structured view of all projections that needed to be taken note of. Also, in the excel files are calculation algorithms and formulas, automatically calculating everything for you as you input all the figures that you need to be analyzed, making your work even faster and cleaner. No worries about how to use the template, there will be instructions that will guide you as you complete the model itself, then voila! You’ll have your very own DCF Model.

If you are in need of a DCF model, you can check the website eFinancialModels. Providing you a wide range of industry specific financial model templates in Excel, made by financial modeling experts, will help you save significant time. You can certainly take advantage and get the benefit of using already existing industry and financial modeling know-how.

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